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Department of Banking and Insurance Offers Tips to Consumers on Life Insurance

TRENTON – As consumers review their insurance needs, one area that is often overlooked and frequently widely misunderstood is life insurance. One of the results is that the U.S. population is grossly underinsured. The percentage of Americans without life insurance coverage has increased to 41 percent, an all time-high, according to the Life Insurance and Market Research Association (LIMRA), a Connecticut-based, international insurance research organization. Further, a recent survey by the National Association of Insurance Commissioners (NAIC) showed that consumers are not aware that some forms of life insurance can potentially be used as either an investment vehicle or a potential source for emergency cash.

“Life insurance coverage is just as important to consumers as auto or homeowners insurance,” said New Jersey Department of Banking and Insurance (DOBI) Commissioner Tom Considine. “There are large numbers of people in this country who are either underinsured or uninsured, and that can cause financial hardship in the event of a death in the family. Further, there are some widespread misconceptions about life insurance that no doubt contribute to these numbers.”

The Commissioner recommended consumers take the following steps before choosing or updating a life insurance policy:

Ascertaining your needs:

Consumers should review their financial situation and determine how large a policy their family would need in case of a family member’s death. Potential purchasers should calculate current expenses and yearly income along with the cost of a funeral to establish an estimate.

Policy buyers should also keep in mind that their needs may change over time.

Keeping all your options open:

Consumers should speak to insurance agents to determine what type of insurance will most effectively protect them.

Research all available options and life insurance companies before making a decision.

Consumers should read the policy carefully and note whether premiums and benefits vary from year to year and how much the benefits build up in the policy, among other things, before they choose an insurance company.

Ask for outlines or buyer’s guides that detail coverage in order to compare the features of several policies.

Consumers should contact DOBI to verify that the company and/or agent is licensed in New Jersey.

Consumers who already have policies should not drop one policy and buy another without a thorough study.

Consumers should learn about the two basic types of life insurance: term and permanent.

Term insurance tends to have lower premiums in the early years but does not build up cash values for use in the future. It is often less expensive than permanent insurance. Term insurance covers consumers for a specific amount of time. If the policyholder dies during that set time, the beneficiaries receive payment. However if the policy term ends before the insured dies, the policy either expires or will need to be renewed for likely a higher price.

Permanent insurance builds cash value over time. If the policy is surrendered before the policyholder dies, the policyholder can withdraw the cash value.

Also, policyholders can borrow against this policy’s cash value in case a loan is needed. However consumers should note that the borrowed loan accrues interest and reduces the death benefit and the cash value by the amount of the outstanding loan plus interest. In addition, this policy covers consumers for as long as they live, even if their health deteriorates. As long as consumers make all of the required payments they are covered for the duration of their life.

Consumers should also be aware that a variety of products combine the features of both term and permanent life insurance. An insurance agent can provide more details about the range of options available.

“Life insurance should be a key part of families’ financial planning. Consumers should understand the importance of it, compare policies carefully and make educated decisions,” said Commissioner Considine. “It is never too early in a consumer’s life to investigate available coverage options.”